Tracking Down and Collecting Unclaimed Life Insurance

Angelo Karamitos, a general manager for a vending company in Racine, Wis., said that when his mother died, he found a safe-deposit box and a life insurance policy he did not know existed.Credit
Darren Hauck for The New York Times

THE most basic purpose of having a life insurance policy is to provide some assistance for loved ones when you die. Wealthier people sometimes use life insurance for estate planning, while most people expect the policies on which they have paid premiums for decades to help their heirs get by — or at the least cover funeral expenses.

Yet hundreds of millions of dollars in life insurance goes unclaimed each year for one simple reason: the beneficiaries do not know the money exists. Even in this wired age, if the insurance company cannot locate the beneficiary — or for that matter, even learn that the policyholder has died — that money will go unclaimed.

The money does not stay with the insurer indefinitely. It is eventually transferred to state unclaimed property divisions. And the states then post the information on Web sites or in local newspapers.

But that process can take years, and in the meantime, first the insurers and then the states profit from money owed to the beneficiaries.

New York has received $400,287,736 in unclaimed life insurance property since 2000 and paid out $64,772,228, said Vanessa Lockel, a spokeswoman for the Office of the State Comptroller. And that is just one part of the $10.5 billion the state has received in unclaimed property since 1943. Only about 20 percent of the property is claimed in any year.

Florida has about 9.9 million unclaimed accounts — including securities and other property, in addition to insurance — worth more than $1 billion. Of that, some $355 million is related to unclaimed insurance, said Alexis Lambert, a spokeswoman for the Florida Department of Financial Services.

The reality, though, is that most of those insurance policies will never be claimed and the money will end up being used by the states. New York has had an account from one person worth $1.7 million since 2004.

So how bad is the problem of unclaimed life insurance policies, and what can you do if you think you’re the beneficiary of one?

THE PROBLEM It is difficult to accurately estimate the extent of unclaimed life insurance policies.

Joseph M. Belth, professor emeritus of insurance at Indiana University and editor of the Insurance Forum, tried to calculate the amount that insurance companies send to states from unclaimed policies. He asked the 20 largest insurance providers how much they remitted in 2009, and he asked the 20 largest states how much they had received. He received few answers and even fewer complete ones.

“I got the feeling that all of this is unaudited,” Mr. Belth said. “The states can’t afford to do the audits. Whether the companies have good recordkeeping I honestly don’t know, but I strongly doubt it.”

He extrapolated from the data collected that about $351 million in unclaimed life insurance was transferred to states in 2009, and insurance companies had total unclaimed policy liabilities of $1.3 billion. Yet he said he believed those estimates were low.

Individual insurance companies contacted for this column generally did not want to discuss the subject. But the life insurance trade industry association said insurers did their best to track down beneficiaries.

“Life insurers make every effort to locate beneficiaries of life insurance policies,” said Whit Cornman, a spokesman for the American Council of Life Insurers, a trade group. “Many companies have units dedicated to dealing with unclaimed proceeds.”

Depending on the state, insurance companies have two to seven years from the date a policy is deemed inactive to transfer the money.

As for the states that receive the unclaimed money, they say it is always available to be claimed but will be used for other purposes until then.

“We put an ad in the paper for people to check our Web site,” said Anthony Forchino, assistant director at the Arizona Department of Revenue. “It goes into a general fund each year until it’s claimed. We hope that we have enough left out each year to pay the claims.”

But the reality is that both insurers and states benefit for years from the unclaimed money.

LOST AND FOUND Insurance is regulated by the states, meaning there is no central place to turn to in locating policies. “The short answer is there does not appear to be a definitive source for identifying how many life insurance policies lay unclaimed by their beneficiaries in the United States,” said Michael Barry, a spokesman for the Insurance Information Institute.

Several services that track insurance policies are aimed at people who want a place to put their information. For a one-time fee of $115 to $145, the site acts as a repository for insurance information and periodically monitors whether members are alive. When it determines they are not, it notifies their beneficiaries.

“The big misconception is there is some government number you can call and say, ‘I’m here to collect my spouses’ assets,’ ” said Tej Shah, a co-founder of the company. “That doesn’t exist.”

Another source is MIB Group, an insurance industry organization that maintains a database of 170 million records going back 14 years. Its limitation, though, is that the records are for applications for individual policies — not for policies that were actually written.

The other alternative is so-called tracers — people who scour public records for lost property and will provide information on accounts for a percentage of the assets you end up recovering.

So much energy is spent on finding unclaimed policies because some insurance does not go away even if you stop making premium payments. Many types of policies build up equity over the years, and that equity can pay the premiums if you don’t. In the end, the death benefit may be reduced by the premium payments, but there is still a benefit.

“It’s a huge problem because people don’t keep good records, and policies build up cash values,” Mr. Belth said. “It’s concerned me over the years, but I have no way to know how widespread this is.”

LUCK AND FRUSTRATION Even the stories of people finding policies are not all that heartening. They show that the policies could just as easily have gone undiscovered.

When his mother died eight years ago, Angelo Karamitos, 48, a general manager for a vending company in Racine, Wis., said he was surprised by what he found rummaging through her papers.

“We had to scramble through boxes and files to find what she had,” he said. The two things that surprised him most, he said, were a safe-deposit box and a life insurance policy he did not know existed. He said once he found the insurance policy, redeeming it was easy.

But not all such discoveries end so happily. When a prominent doctor and property developer in the Washington area died in 1999, one of his sons had the task of cleaning up his estate.

“We shared a post office box for business,” said the son, a doctor and a lawyer in Chevy Chase, Md., who asked for anonymity to protect his mother. “It was a couple of years before I realized I was getting these things from John Hancock. Then, there were these premium notices. I realized there was an insurance policy out there.”

It turned out his father had taken out a life insurance policy with his girlfriend as the beneficiary. The son was the secondary beneficiary. “I tried to track her down,” he said. “She didn’t believe me, so the policy still sits there until this day.”

Although John Hancock received proof of the father’s death, it did not have a current address for the girlfriend. And now, a life insurance policy for $12,500 remains unclaimed.

A version of this article appears in print on February 26, 2011, on Page B6 of the New York edition with the headline: Tracking Down and Collecting Unclaimed Life Insurance. Order Reprints|Today's Paper|Subscribe